EDAP TMS S.A. (EDAP) CEO Marc Oczachowski on Q2 2018 Results - Earnings Call Transcript

by: SA Transcripts

EDAP TMS S.A. (NASDAQ:EDAP) Q2 2018 Results Earnings Conference Call August 30, 2018 8:30 AM ET


Paul Arndt - IR, LifeSci Advisors

Philippe Chauveau - Chairman

Marc Oczachowski - CEO

François Dietsch - CFO


Swayampakula Ramakanth - H.C. Wainwright


Ladies and gentlemen, good day and welcome to the EDAP TMS Second Quarter 2018 Financial Results Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Paul Arndt, Managing Director of LifeSci Advisors. Please go ahead, sir.

Paul Arndt

Thank you, Operator. Good morning and thank you for joining us for the EDAP TMS second quarter 2018 earnings conference call. On today’s call we will hear from Philippe Chauveau, Chairman of the Board; Marc Oczachowski, Chief Executive Officer; and François Dietsch, Chief Financial Officer.

Before we begin, I would like to remind everyone that management’s remarks today may contain forward-looking statements, which include statements regarding the company’s growth and expansion plans. Such statements are based on management’s current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those described in the company’s filings with the Securities and Exchange Commission.

I would now like to turn over the call over to EDAP’s Chairman, Philippe Chauveau. Please go ahead.

Philippe Chauveau

Thank you and thank you all for joining us today. This was a momentous quarter for EDAP as we were thrilled to secure FDA clearance in June for our Focal One device. This clearance provided important validation for our technology and based on feedback we have received from the global urology community, we are excited about the impact that Focal One can have on improving the treatment of prostate cancer, while minimizing the unfortunate side effects that come with other treatment options. This is a wonderful technology and our priority now turns to making Focal One available to as many patients as possible.

With that, I'd like to turn over the call to EDAP's CEO, Marc Oczachowski. Marc?

Marc Oczachowski

Thank you, Philippe. Good morning everyone and thank you for joining us for our second quarter 2018 conference call. François will detail our financial results a bit later on, but as a short comment, we finish the first six months of 2018 at the similar level of revenue as compared to the similar period in 2017, with a slight decrease of 1%.

We, of course, would love to show continued growth in our total revenue, but in the context of being in the final stages of Focal One FDA review that has slowdown our sales in the U.S. However, we were pleased to minimize the impact on revenue, thanks to our OUS sales performance.

As you all noticed very big news from our 2018 second quarter was definitely the clearance of Focal One in the U.S. FDA granted us 510 (k) clearance early in June. It's been a lot of work and focus and I wanted again to thank the EDAP teams in the U.S. and in France that have worked hard and made this happen. Everyone, including investors, shareholders, and also the urology community and patients in the U.S. have been waiting for this [expecting][ph] decision a long time. This is indeed great news and a fantastic milestone for company and its novel technology.

EDAP now positions itself as the only company to offer the latest generation of HIFU devices cleared by FDA to perform prostate tissue ablation. Focal One is the only HIFU device on the market with the exclusive dynamic focusing technology, which combined with the latest software and [imaging] [ph] modality offers the best accuracy and precision possible to meet the growing demand of focal ablation of the prostate.

Focal One is not only technologically far ahead of the other HIFU devices, the first generation of devices to be cleared by FDA, but also benefits from a new disruptive and modern design. By comparison, the first generation of devices, while not yet obsolete, are based on a [two] [ph] year old design and concept.

Focal One was cleared by FDA at the end of the second quarter, we have not yet seen impact on our revenue stream and our attention now has shifted entirely to putting this valuable tool into the hands of the urologists at leading hospitals and cancer centers around the country.

We've been encouraged by the many discussions we have had particularly with key opinion leaders and [Indiscernible] in the urological field. These practitioners understand the great value of Focal One in improving the ability to ablate prostate issue more effectively and more efficiently based on greater precision and new technology.

[Indiscernible] our discussions with potential hospital customers are centered on the technological, clinical, and financial advantages of the Focal One. This has obviously allowed us to restart most of our project that were put on hold during the FDA process and our U.S. team is working hard to advance the sales cycle for this medical device.

We are hopeful that we will soon finalize agreements to place these systems and we will, of course, continue to update you as these discussions progress further.

And now our CFO, François Dietsch will provide a review of our financial results. François?

François Dietsch

Thanks you, Marc and good morning everyone. Please note that all figures except for percentages are in euros. For conversion purposes, our average euro/dollar exchange rate was 1.2053 for the first six months in 2018 and 1.1806 for the second quarter of 2018.

For the first six months of 2018, total revenue was €17.8 million, a slight 1.3% decrease compared to the same period last year, including 1.9% increase in the UDS sales and 9% decrease in the HIFU sales, primarily in the U.S. as mentioned by Marc.

Gross margin for the first half of 2018 was 42.6%, an increase of 50 basis points year-over-year, mainly driven by the margin improvement [innovated][ph] by our new sales organization in [Korea] [ph].

Operating expenses for the first half of 2018 were €9 million, an increase of €0.6 million compared to the first half of 2017, reflects the increased investment in certain marketing and HIFU pipeline development program.

Net loss for first half of 2018 was €0.7 million and including non-cash interest income of €0.5 million to adjust the accounting fair value of the outstanding warrants.

Turning to the second quarter, total revenue was €8.6 million, a decrease of 7.7% versus the second quarter of 2017. On the HIFU start, we generated sales of €2.3 million, representing a decline of 20% versus Q2 2017. This year-over-year drop stems entirely from a reduction in HIFU system sales as we sold one Focal One unit during the quarter versus one Focal One and two Ablatherm units during Q2 2017.

As Marc discussed earlier, customers have continued to wait for Focal One as [Indiscernible]. Now, the UDS business, Q2 revenue of €6.3 million was down 2% versus the second quarter of 2017. We sold 10 units during the quarter versus seven in the same period last year, but the average selling price this year was lower due to product mix.

Gross margin for the quarter was 41.3%, a decrease of 190 basis points year-over-year reflecting mainly the lower level of activity. Operating loss for the second quarter was €1.1 million and operating profits in our Lithotripsy business was offset by an operating loss in HIFU. This compares to an operating loss of €0.4 million in the second quarter of 2017.

Net loss for the quarter was €0.8 million, or a €0.03 per diluted share versus a net loss of €1.7 million or €0.06 per diluted share in Q2 2017. The second quarter net loss included a non-cash interest expense of €0.1 million to address the accounting fair values of our outstanding warrants.

And lastly let me talk about cash, we exited the second quarter with a strong cash balance of €17.2 million. As a reminder -- and historically, this cash assumption is seasonal and at end of June, cash position is usually low due to the second half of the year preparation with high level of working capital.

I will now turn the call back to Marc.

Marc Oczachowski

Thank you, François. As I said we are very excited to have Focal One cleared for sale in the U.S. and we continue to make progress in our discussions with potential customers.

With that, we would now like to open up the call to your questions. Operator?

Question-and-Answer Session

Thank you. [Operator Instructions]

And we will take our first question from Swayampakula Ramakanth from H.C. Wainwright. Please go ahead.

Swayampakula Ramakanth

Good morning Marc and congratulations on a very good quarter in terms of getting the Focal One approved.

Marc Oczachowski

Thank you.

Swayampakula Ramakanth

Just staying on the topic of approval of Focal One, just trying to understand how your commercial strategy, especially the promotional part among the physicians in the United States is evolving compared to where you were just about three months ago, now that you have another product to offer to them, what sort of conversations you are having? How were they receptive to this and any update at all? I know we just heard that there was one Focal One sold during the second quarter, I would think that was somewhere in ex-U.S., but just trying to understand how things are progressing in the U.S.?

Marc Oczachowski

Yes, thanks for the question and thanks for joining the call. I mean for competitive reasons, I won't go into too much detail for sales and marketing operations in the U.S., but as you said and as we mentioned, we gathered a pipeline of projects and a number of [leads] [ph] from our sales network but also from our marketing operation and [indiscernible] and obviously, once we got the clearance from FDA, we reactivated most of [indiscernible] and also we increased our prospection to other centers that were waiting for the latest generation of HIFU.

So, we're working hard, like I said, on that and we are having very deep discussions and we restarted sales cycles in most of these projects with the aim of closing deals as soon as we can.

Swayampakula Ramakanth

Okay. So, I know you don't like to give numbers, but I'm just trying to understand is there something that you can talk about very qualitatively in terms of backlog, in terms of units being -- getting ready to be to be sold? Some kind of an indication for us to know what's the kind of inflection we could see from this new approval, would it be something close to what we had seen initially with Ablatherm approval? Could it be better, what kind of a feel you have and what sort of a confidence you have in that thinking?

Marc Oczachowski

Like I said we don't give too much numbers and forward-looking statements, but what is sure is that the clearance of Focal One [has created][ph] excitement in the market in the U.S., but also it does resonate in other markets and we definitely have opened new projects and new leads that were again interested into the unique and exclusive features of Focal One that makes it very unique in the market.

So, we have maintained our pipeline and also adding to that pipe project [indiscernible] we're waiting for technology.

Swayampakula Ramakanth

Very good. The other piece of the -- of trying to get the reimbursement in addition to Cigna was trying to get more publications in. I know you've put some anecdotal stories like the recent one from the University of Houston and other places, but is there a thought process among some of your KOLs that they could put some publications out so that that can support your application with the CMS and other places for reimbursement? Any update at all in that side of commercialization?

Marc Oczachowski

Absolutely. We are working on that because that's the way to go and to be able to achieve a definitive [growth] [ph], but we’re definitely working with our current users and veteran centers in the U.S., but we also continue to work with our investigation center that participated in the [PMS] [ph] trial and that are now achieving some of them in U.S. follow-up on the first cases that were part of the protocol of IDE study. So, we're definitely working on that to create publication and again to strengthen, like you said, the file for reimbursement.

Swayampakula Ramakanth

Great. Thank you very much for answering all my questions and talk to you soon.

Marc Oczachowski

Thank you. You're welcome.


And we have no additional phone questions at this time. So, I would like to turn the conference back to Marc Oczachowski for any additional or closing remarks.

Marc Oczachowski

Thank you, operator and thank you again to everyone for participating in today's call. We look forward to updating you on our commercial and development activities again in the near future. With that I wish you all a great day. Bye, bye.


Ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.